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Bad news or good news? Comparing coronavirus impacts on the big five banks

Between them, Britains big five banks have so far made provisions for £7.5bn of bad loans later this..

By admin , in Cambridge , at May 2, 2020

Between them, Britains big five banks have so far made provisions for £7.5bn of bad loans later this year from the coronavirus crisis.

These charges led to first-quarter profits falling for each of the quintet, ranging from a 95% plunge for Lloyds Banking Group PLC (LON:LLOY) to just 12% for Standard Chartered PLC (LON:STAN).

The “good news” is that the UKs top lenders losses were nowhere near the amount absorbed by their US cousins, said AJ Bell analyst Russ Mould.

A combined US$24bn hit was taken by the four giant Main Street lenders, Bank of America, Citigroup, JP Morgan and Wells Fargo.

Britains banks may have been helped by the leeway granted by the Bank of Englands Prudential Regulatory Authority with regards to the accounting for the potential losses, Mould said, “which means the banks do not face an immediate requirement to book hefty losses against loans impacted by the viral outbreak”.

“However, this does beg the question of whether there are further losses coming down the line for the Big Five, despite their rigorous tests and scenario analyses, even if they are mercifully a long way from the run rate needed to match the £57bn in loan and credit impairments booked in 2009.”

Of the London-listed banks, HSBC PLC (LON:HSBA) as the largest unsurprisingly had to take the largest charge, with a US$2.4bn increase in provisions for potential credit losses to a total of US$3bn. The globe-spanning lender had already taken an even bigger hit, when Februarys final results revealed a US$7.3bn goodwill impairment taken for the fourth quarter due to lower assumptions about the worlds long-term economic growth.

Barclays PLC (LON:BARC) ramped up its credit impairment charges to £2.1bn, including £1.2bn from the potential fallout from the pandemic and a sustained period of low oil prices and £405mln for wholesale loans.

Lloyds unveiled £1.8bn of charges, with £1.4bn impairments and £421mln of other charges.

Without the large credit card business of the above pair, Asia-focused Standard Chartered PLC (LON:STAN) made an impairment of US$956mln.

With its results coming at the end of the week, taxpayer-owned Royal Bank of Scotland Group PLC (LON:RBS) took the smallest charge — so far at least — with impairment losses of £802mln that included £628mln specifically relating to the more uncertain economic outlook.

Plunging profits – mostly

RBS did not see the smallest effect on profit before tax, with PBT for the quarter down 49% to £519mln year-on-year, down 66% on the preceding quarter.

Lloyds, as mentioned, saw the biggest drop as PBT of £74mln down 95% compared to the fourth quarter and first quarter last year.

HSBC profits of US$3.2bn crashed 48% year-on-year, as income remained solid, but profits were much better than a US$3.9bn lossRead More – Source